Fiction or Fact: Systematic Gender Differences in Financial - PowerPoint PPT Presentation

Fiction or Fact: Systematic Gender Differences in Financial investments? H O U S E H O L D F I N A N C E A N D M A C R O E C O N O M I C S C O N F E R E N C E B A N C O D E E S P A Ñ A , O C O T B E R 1 5 - 1 6 , 2 0 0 9 CHARLOTTE CHRISTIANSEN A A R H U S U N I V E R S I T Y JUANNA S. JOENSEN S T O C K H O L M S C H O O L O F E C O N O M I C S J ESP ER RANG VID C O P E N H A G E N B U S I N E S S S C H O O L

Previous literature  Women hold less risky portfolios:  Interpretation: Women are more risk averse.  E.g. Jianakoplos & Bernasek ( EI 1998), Sundén & Surette ( AER 1998), Agnew, Balduzzi & Sundén ( AER 2003), Säve-Söderberg (2005), and Lyons and Yilmazer (2006).  Women trade less with financial assets:  Interpretaion: Men are overconfident.  E.g. Barber & Odean ( QJE 2001), Agnew, Balduzzi & Sundén ( AER 2003), Niessen and Ruenzi (2006). Fiction or Fact? Christiansen, Joensen & Rangvid

In this paper, we...  ....document that women unconditionally hold less risky portfolios.  ....question whether women are more financially risk averse. Fiction or Fact? Christiansen, Joensen & Rangvid

2 stylized facts motivate our paper Differences between labor income and wealth profiles of men and women.  Could possibly explain some of the observed differences between female and male investors . Existing studies on gender differences look only at investors who hold financial assets.  Nonparticipants often excluded from the analysis.  51% of US households nonstockholders.  76% of European households nonstockholders.  75% of Danish adults nonstockholders. Fiction or Fact? Christiansen, Joensen & Rangvid

Research questions  Are women’s seemingly lower propensity to invest in risky asset due to differences in background characteristics?  Taking self-selection into account, do women hold less risky financial wealth portfolios? Fiction or Fact? Christiansen, Joensen & Rangvid

Overall results Using very detailed and comprehensive data, we find:  Unconditionally , women seem to be more averse against taking on financial risk.  Conditionally , women and men behave similarly on the bond and stock markets. Fiction or Fact? Christiansen, Joensen & Rangvid

Important point in paper We pay special attention to marital status:  Previous literature find differences between married and single investors.  E.g. Barber & Odean (2001), Sundén & Surette (1998).  We look specifically at:  Single women.  Changes in behavior when changing marital status. Fiction or Fact? Christiansen, Joensen & Rangvid

Related analysis  Related to Christiansen, Joensen & Rangvid ( RF 2008).  Stock market behavior and education.  Finding: Economists more likely to hold stocks (than otherwise identical investors). Fiction or Fact? Christiansen, Joensen & Rangvid

Outline of talk  Introduction  Data  Financial market participation  Portfolio riskiness  Moving together – moving away from one another  Conclusion Fiction or Fact? Christiansen, Joensen & Rangvid

Outline of talk  Introduction  Data  Financial market participation  Portfolio riskiness  Moving together – moving away from one another  Conclusion Fiction or Fact? Christiansen, Joensen & Rangvid

Data  Data from Denmark.  Register-based data set.  Representative 10% sample of adult Danish population.  Year-end information 1997-2004.  Detailed information on background characteristics.  3,023,110 observations of individual investor decisions. Fiction or Fact? Christiansen, Joensen & Rangvid

Descriptive statistics  Unconditionally , women participate less in the stock market:  Men’s participation rate: 27%  Women’s participation rate: 23%  Unconditionally , women hold less risky portfolios:  Men’s stock/financial wealth ratio: 31%  Women’s stock/financial wealth ratio: 29%  Unconditionally , women have lower holdings of stocks:  Value of men’s stock holdings: DKK 32,945  Value of women’s stock holdings: DKK 27,136 Fiction or Fact? Christiansen, Joensen & Rangvid

Unconditional stock market participation rates Fiction or Fact? Christiansen, Joensen & Rangvid

Descriptive statistics But:  Women also have lower income and wealth:  Men’s average annual income: DKK 286,094  Women’s average annual income: DKK 200,034  Women’s pension contributions are lower:  Men’s DKK 19,091  Women’s: DKK 12,574  More women live together with a child:  Single men: 2%  Single women: 11% Fiction or Fact? Christiansen, Joensen & Rangvid

Outline of talk  Introduction  Data  Financial market participation  Portfolio riskiness  Moving together – moving away from one another  Conclusion Fiction or Fact? Christiansen, Joensen & Rangvid

Dependent variable The participation decision:  Stock market participation indicator. As stock and bond investments might be related, we also model the bond market behavior:  Bond market participation indicator. Fiction or Fact? Christiansen, Joensen & Rangvid

Participation model  Bivariate probit model for stock and bond participation: S 1 X it it S S it 1 B X it it B B it  Error term vector:  Independent over individuals and time.  Standard normal distribution with correlation coefficient ρ .  Marginal effects upon participation probabilities. Fiction or Fact? Christiansen, Joensen & Rangvid

Explanatory variables  Gender  Marital status  Interaction (married male)  Socioeconomic variables:  Age, children, length of education, economist. Fiction or Fact? Christiansen, Joensen & Rangvid

Explanatory variables  Financial variables:  Noncapital income, cash holdings, equity in houses, pension contribution, lagged stock and bond participation indicators, lagged stock return.  Second-moment variables:  Standard deviations: growth in noncapital income, growth in equity in houses.  Correlations: (noncapital income, stock return), (noncapital income, bond return), (equity in houses, stock return), (equity in houses, bond return), (equity in houses, noncapital income). Fiction or Fact? Christiansen, Joensen & Rangvid

Participation results Explanatory V ariable Stocks Bonds Constant -4.776 (0.105) * -5.501 (0.114) * Married -0.095 (0.013) * -0.255 (0.014) * Male -0.018 (0.015) -0.202 (0.016) * Married Male 0.075 (0.017) * 0.185 (0.019) * Age 0.007 (0.000) * 0.016 (0.000) * Children -0.039 (0.007) * -0.066 (0.009) * Length of Education 0.010 (0.001) * 0.027 (0.001) * Economist 0.283 (0.019) * 0.199 (0.020) * Log Noncapital Income 0.097 (0.009) * -0.009 (0.009) Lagged Stock Participation 2.330 (0.007) * 0.208 (0.008) * Lagged Bond Participation -0.013 (0.010) 2.115 (0.009) * Lagged Stock Return -0.428 (0.021) * 1.015 (0.024) * Cash Holdings 0.122 (0.003) * 0.108 (0.003) * Equity in Houses 0.055 (0.004) * 0.113 (0.004) * Pension Contribution 0.013 (0.003) * 0.023 (0.003) * St.Dev.(Growth Noncapital Income) 0.000 (0.000) 0.000 (0.000) Correlation (Noncapital Income; Stock Return) -0.007 (0.009) 0.009 (0.010) Correlation (Noncapital Income; Bond Return) -0.026 (0.010) * -0.006 (0.012) St.Dev. (Growth Equity in Houses) 0.000 (0.000) 0.000 (0.000) Correlation (Equity in Houses; Stock Return) 0.045 (0.009) * 0.004 (0.010) Correlation (Equity in Houses; Bond Return) 0.033 (0.009) * -0.009 (0.010) Correlation (Equity in Houses; Noncapital Income) -0.002 (0.008) 0.019 (0.009) * Correlation coefficient 0.301 (0.005)* Fiction or Fact? Christiansen, Joensen & Rangvid

Stock market participation results Married -0.095 (0.013) * Male -0.018 (0.015) Married Male 0.075 (0.017) * Age 0.007 (0.000) * Children -0.039 (0.007) * Length of Education 0.010 (0.001) * Economist 0.283 (0.019) * Log Noncapital Income 0.097 (0.009) * Lagged Stock Participation 2.330 (0.007) * Lagged Bond Participation -0.013 (0.010) Lagged Stock Return -0.428 (0.021) * Cash Holdings 0.122 (0.003) * Equity in Houses 0.055 (0.004) * Pension Contribution 0.013 (0.003) * Fiction or Fact? Christiansen, Joensen & Rangvid

Participation results  Men do not have a stronger tendency to hold stocks.  Negative effect from being married.  Only married men have higher probability of holding stocks than single women.  Overall, females are not less likely to hold stocks. Fiction or Fact? Christiansen, Joensen & Rangvid

Outline of talk  Introduction  Data  Financial market participation  Portfolio riskiness  Moving together – moving away from one another  Conclusion Fiction or Fact? Christiansen, Joensen & Rangvid

Heckman (1979) Selection Model We want to evaluate what investors hold more risky  portfolios. Riskiness defined as stocks/assets.  But we can also see the riskiness measure for those  investors who actually do hold stocks. Use Heckman’s (1979) model.  Fiction or Fact? Christiansen, Joensen & Rangvid